Q1 2023 Castle Biosciences Inc Earnings Call
Speaker 2: Good afternoon and welcome to Castle Biosciences first quarter 2023 conference call. As a reminder today's call is being recorded. We will begin today's call with opening remarks and introductions followed by a question and answer session. I would like to turn the call over to Camilla Zechero, Vice President Investor Relations and Corporate Affairs.
Speaker 3: and Chief Financial Officer Frank Stokes.
Speaker 3: Information recorded on this call speaks only as of today, May 3, 2023. Therefore, if you are listening to the replay or reading the transcript of this call, any time-sensitive information may no longer be accurate. A recording of today's call will be available on the Investor Relations page of the company's website for approximately three weeks.
Speaker 3: Before we begin, I would like to remind you that some of the statements made today will contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995.
Speaker 3: These forward-looking statements include, but are not limited to, statements about our financial outlook, CAM, and similar items referenced in our earnings release issued today, and statements containing projections regarding future events or our future financial or operational performance, including our 2023-2025 outlook.
Speaker 3: our expectations regarding reimbursement for our products, and the impact of our investments in growth initiatives and expanded commercial teams. Forward-looking statements are based upon current expectations and involve inherent risks and uncertainties, and there can be no assurances that the results contemplated in these statements will be realized.
Speaker 3: A number of factors and risks could cause actual results to differ materially from those contained in these forward-looking statements. These factors and other risks and uncertainties are described in detail in the company's quarterly report on Form 10-Q for the quarter ended March 31, 2023 under the heading Risk Factors Report.
Speaker 3: and in the company's other documents and reports filed with the Securities and Exchange Commission. These forward-looking statements speak only as of today, and we assume no obligation to update or revise these forward-looking statements as circumstances change.
Speaker 3: In addition, some of the information discussed today includes non-GAAP financial measures such as adjusted revenue, adjusted gross margin, and adjusted EBITDA that have not been calculated in accordance with generally accepted accounting principles in the United States, or GAAP. These non-GAAP items should be used in addition to, and not as a substitute for, any GAAP results.
Speaker 3: We believe these metrics provide useful supplemental information in assessing our revenue, cash flow, and operating performance. Reconciliation of these non- GAAP financial measures to the most directly comparable GAAP financial measures are presented in the tables at the end of our earnings release issued earlier today, which has been posted on the investor relations page of the company's website.
Speaker 3: I will now turn the call over to Derek.
Speaker 4: Thank you, Camilla. And good afternoon, everyone.
Speaker 4: As you saw from our announcement a few minutes ago, I am pleased to share that Castle Biosign delivered another strong quarter, growing revenue by 57 percent and total test report volume by 73 percent compared to the first quarter of 2022, which we attribute to continued focus on our long-term strategy.
Speaker 4: which translates to strong near-term operational performance.
Speaker 4: We believe it's performance sets us up for another excellent year.
Speaker 4: And I would like to first and foremost thank our CASL employees.
Speaker 4: Our success is based on their dedication to our patient-focused mission.
Speaker 4: We believe if we focus on improving the outcomes of the patients that we serve, then clinicians should find value in ordering our tests.
Speaker 4: We should get paid fairly and we will therefore have a great revenue growth profile.
Speaker 4: As such, we remain confident in our business and are reaffirming our 2023 Total Revenue Guidance of $170 to $180 million.
Speaker 4: Today, I will take you through execution and strategy highlights from the quarter, and then Frank will provide financial highlights for the period, including with your questions.
Speaker 4: First, I would like to put our first quarter results in the context of our long-term strategy.
Speaker 4: We entered 2020 with an estimated in-market U.S. total addressable market or TAM of approximately $547 million. Through thoughtful planning and execution excellence on our near and long-term growth strategy, we have seen significant organic growth in the top line.
Speaker 4: diversified our portfolio with strategic investment and increase our estimated in-market US only 10 to 8 billion dollars.
Speaker 4: We believe that our actions position us well for continued value creation in 2023 and beyond.
Speaker 4: What a great way to enter this year and have the opportunity to maintain focus on our long-term growth plans.
Speaker 4: Now, let's get to our first quarter results.
Speaker 4: Driven by successful execution of our growth initiatives in 2022, we saw strong year-over-year and sequential growth in our core dermatology business. We evolved our dermatology facing commercial team in a third quarter of 2022. Our dermatology facing sales team now consists of approximately 70 outside sales territories.
Speaker 4: that are equally focused on decision DX melanoma and decision DX SCC.
Speaker 4: In the first quarter of 2023, test volume for these two tests combined was 9,994. Growth of 39% year-over-year growth.
Speaker 4: and 9% sequentially.
Speaker 4: This growth is an excellent reflection of our focused on operational execution, which we have demonstrated time after time since our IPO in mid-2019. Another pillar of our growth strategy is a continued development of evidence to support clinical use of our tests, including impacting outcomes. I think most of us are aware that the value of risk-tradification tests might be...
Speaker 4: We have for years generated data with our decision, the XML and LNL test, that has shown clinicians to use our tests clinically, do in fact make changes in selecting of their patient treatment pathways. And we have always had an indirect chain of evidence that these changes, so therefore result in either less intervention, like elimination of an unnecessary, simple to biopsy procedure.
Speaker 4: or more intervention, like initiation of regular imaging based upon a higher decision the X melanoma test result that should then enable earlier detection of a metastasis and then earlier initiation of immune or targeted therapy.
Speaker 4: Early initiation of therapy is significant. As the clinical studies with these agents in melanoma have shown that we get better responses if immunotherapy is initiated when the tumor burden is lower. And we find lower tumor burden when we employ routine scheduled advanced imaging protocols like CT scans and brain MRIs.
Speaker 4: compared to imaging those patients only following a symptom of metacidus. A key point to reinforce here is the word indirect. It is rare for a risk stratification test to prospectively demonstrate that better treatment pathway selections result in improved survival outcomes versus net health outcomes.
Speaker 4: As you might have seen from our release earlier today, I am pleased to discuss the publication of an independent multi-center clinical study that provides a direct chain of evidence.
Speaker 4: that use a decision the X melanoma test results to guide radiologic surveillance.
Speaker 4: led to improved patient outcomes.
Speaker 4: The study was conducted at three National Cancer Institute designated cancer centers.
Speaker 4: The study was conducted at three National Cancer Institute designated cancer centers, the Cleveland Clinic.
Speaker 4: Northwestern University in Chicago, and Oregon Health and Science Center.
Speaker 4: During the study time period, there were clinicians who had adopted decision-based ex-melano-noma within each of these institutions for clinical use, and there were also clinicians who had not adopted decision-based ex-melano-noma for clinical use. These differences in adoption within each of the three institutions.
Speaker 4: enable the study authors to evaluate directly.
Speaker 4: the impact of treatment pathways that were directed with the FISH&D-X melanoma test results. So those patients whose treatment pathways do not have the benefit of decision D-X melanoma test results.
Speaker 4: That is, patients who were not clinically tested, but were managed within the same institutional setting.
Speaker 4: In addition to the opportunity to control for access to similar care opportunities by limiting the study that patients manage within their same institutions.
Speaker 4: The FETIOSR is also aimed to control for any impact on the performance of a Sentinel-Nosed Bio-Apsi-Surgical Procedure. Thus, the only patients evaluated were those who underwent a Sentinel-Nosed Bio-Apsi-Surgical Procedure and were Sentinel-Nosed negative.
Speaker 4: Meaning that they do not find any melanoma cells in the sentinel with notes.
Speaker 4: This meant that all patients were staged as stage 1 or 2, which is the prime target for the clinical use of our decision, the X melanoma test, given that greater than 90% of early stage melanoma patients are stage 1 or 2 at the time of diagnosis. Each of these institutions had treatment pathways for patients with a high risk class
Speaker 4: to be the decision-dex melanoma test result that escalated their management plan to better align their individual patient's risk of metastasis.
Speaker 4: That is, all patients underwent scheduled routine advanced imaging for the purpose of detecting metastasis when tumor burden was low and not symptomatic.
Speaker 4: In comparison, the control group included patients from the same institution who did not receive decision-dex melanoma test results as part of their clinical care and who were managed appropriately, according to guidelines, without a scheduled routine advanced imaging protocol.
Speaker 4: meaning that they were followed clinically because the population risk of aggression was low enough to put in these patients in a scheduled routine advanced imaging treatment plan was not appropriate based upon guidelines.
Speaker 4: The results we would have predicted from our indirect chain of evidence. That is, patients to receive a high-risk class 2B, decision-dex melanoma test result, and had treatment plans aligned to include scheduled routine-advanced imaging. Have their metastasis detected earlier than those who were followed with routine clinical exams only?
Speaker 4: Further, the decision the X melanoma tested group had recurrence as detected approximately 10 months earlier than patients in the control group and the average tumor burden was significantly lower, with 27.6 millimeters versus 73.1 millimeters for those in the non-testive control group.
Speaker 4: in this lower, versus when the tumor burden is higher, which typically means detected asymptomatically with planned routine imaging versus symptomatically. And we saw this expected outcome in the study.
Speaker 4: Specifically, a patient who had a recurrent.
Speaker 4: 76% of the patients with a melanoma recurrence who received a change in care decisions that was linked to a decision the X melanoma class 2B test result were alive following an average follow-up time of 45.6 months.
Speaker 4: In comparison, a patient who were followed without the benefit of decision-dex melanoma testing, 50% were alive following an average follow-up time of 63.3 months. The p-value here was also significant at p equals 0.027.
Speaker 4: In summary, the study found that using decision the X melanoma to risk stratified patients to guide care resulted in earlier detection of melanoma recurrence while the tumor burden was lower, leading to improved treatment pathway decisions that were directly linked to improved survival.
Speaker 4: Now, this independent study is very exciting from our perspective. It is even more exciting when you view this direct chain of evidence to the indirect chain of evidence within the large, real world, unselected collaboration study that we have with the National Cancer Institute, our NCI, and their surveillance epidemiology and end results or see your program.
Speaker 4: and overall specific survival compared to patients who were not tested.
Speaker 4: That is, who did not have the benefit of decision-ex melanoma test results as part of their clinical care.
Speaker 4: In fact, I'm pleased to announce that the initial publications has been accepted and we expected to be available online by the end of the second quarter.
Speaker 4: We believe that clinicians who diagnose and manage early stage melanoma as well as commercial payers should find these direct and indirect change of evidence compelling. Now let's turn to our gastroenterology franchise.
Speaker 4: We delivered 1,383 tissue-sifer test reports in the first quarter of 2023, up from 56 test reports delivered in the first quarter of 2022, and a 34% sequential increase.
Speaker 4: You may recall we hired the initial sales source in January of 2022.
Speaker 4: It's been a steep amount of time in the first quarter of 2022 in training and also had to work through the ADLT application process and the impact on the Medicare 14-day rule.
Speaker 4: We continue to be extremely pleased with the reception of tissue cypher by the gastroenterology clinician community and associations.
Speaker 4: For example, inclusion in the American Gastonology Association or AGA Clinical Practice Update in July 2022.
Speaker 4: Regarding reimbursement, recall that Medicare Granted Advanced Diagnostic Laboratory or ADLT Status, the Tissue Cypher in 2022.
Speaker 4: As part of the ADLT process, the reimbursant rate for tissue siphon from January 1, 2023 through December 31, 2024 was determined based upon the medium-private payer allowable rate that was received between April 1, 2022.
Speaker 4: in August 31st, 2022, that is $4,950.
Speaker 4: Turning to our mental health franchise, we delivered 2,150 IDGNX test reports in the first quarter of 2023, a 77 percent sequential increase over the fourth quarter of 2022.
Speaker 4: As a reminder, no test reports were delivered by Castle in the first quarter of 2022.
Speaker 4: We have a thoughtful integration plan which spans five to six quarters and we are made away through that plan. As you can expect we are pleased with the random that we are seeing.
Speaker 4: As we've said previously, we believe the pharmacogenomic and mental health opportunity isn't just a matter of a single large market, but an opportunity to enter a series of very large markets.
Speaker 4: One of our integration objectives is the focused on most market segments. What we expect the value of IGNX will be seen by clinicians and their patients.
Speaker 4: including the value of drug interactions and drug G interactions with lifestyle factors combined in a single test report.
Speaker 4: Turning to Reimbursum, I want to remind you that all of our proprietary tests have undergone medical review and as of today are covered by CMS for Medicare beneficiaries.
Speaker 4: Finally, we are looking forward to the official grant opening of our new laboratory in Pittsburgh, Pennsylvania, later this month. After completing our rigorous transition, I am pleased to report the lab is fully functional that we expect to have the capacity and ability to process our proprietary tests from a new laboratory location.
Speaker 4: I will now turn the call over to Craig to provide details relating to our financial results.
Speaker 4: Good afternoon everyone. First quarter revenue was $42 million, an increase of 57% over the first quarter of 2022.
Speaker 4: Overall, the increased revenues primarily reflect an increase in revenues from decision DX-CC and decision DX melanoma.
Speaker 4: We are pleased to see our non-dermatologic revenue continue to grow in the first quarter as a percent of revenue in line with our expectations.
Speaker 4: Adjusted revenue, which excludes the effects of revenue adjustment related to test delivered in prior periods,
Speaker 4: It was $43.4 million, an increase of 65% over the first quarter of 2022.
Speaker 4: Our gross margin during the first quarter was 70.5%.
Speaker 4: compared to 71.7% in the first quarter of 2022.
Speaker 4: Our adjusted gross margin, which excludes the effects of intangible asset amortization related to our acquisitions.
Speaker 4: and revenue associated with test reports delivered in prior periods was 76.5% of the quarter compared to 77.4% for the same period in 2022.
Speaker 4: Our total operating expenses, including cost of sales for the quarter-ended March 31, 2023, were $73.6 million, compared to $51.4 million for the first quarter of 2022.
Speaker 4: The largest driver of the increase was higher SGNA, which increased by $16.3 million compared to 2022. Attributable in large part, the higher personnel cost associated with our increased head count, which include expenses related to stock-based compensation, salaries, bonuses, and benefits.
Speaker 4: These higher personnel costs were primarily attributable to the expansion of our sales and marketing teams.
Speaker 4: as well as administrators and court functions.
Speaker 4: The remainder of the increase in sales and marketing expenses was primarily associated with travel, training events, and conference fees.
Speaker 4: R&D expense increased by 3.6 million in the first quarter compared to the first quarter 2022. It was primarily associated with additional headcount to manage and run our clinical studies and increases in other expenses associated with increased clinical study activity.
Speaker 4: Total stock based compensation expense, which is allocated among cost of sales, R&D expense, and SG&A expense.
Speaker 4: total 13.5 million dollars for the first quarter compared to 8.4 million dollars for the first quarter of 2022
Speaker 4: The increase was primarily attributable to the effect of our annual equity awards granted in December 2022. In the first quarter of 2022, operating expenses included change in fair value and contingent consideration of $2.6 million or $0.10 per limited share and was related to the remesion of the liability for earn out payments in connection with our acquisition.
Speaker 4: The increase is primarily associated with the amortization of developed technology attributable to the acquisition of Althea DX.
Speaker 4: associated with the Emerization of Developed Technology attributable to the acquisition of the ADX in April 2022.
Speaker 4: Interest income increased by $2.3 million for the first quarter of 2023 compared to the first quarter of 2022. The increased primarily reflects higher interest rates earned on our cash equivalents and our purchases of marketable investment securities during the third quarter of 2022.
Speaker 4: Our net loss for the first quarter of 2023 was $29.2 million compared to net loss of $24.6 million for the first quarter of 2022. The looted loss per share for the first quarter was a dollar and ten cents compared to the looted loss per share of 97 cents in the first quarter of 2022.
Speaker 4: Adjusted EBITDA for the first quarter was negative $15.1 million compared to negative $11.4 million for the comparable period in 2022.
Speaker 4: Net cash used in operating activities was $25.4 million for the three-month-end at March 31, 2020.
Speaker 4: of which $17.7 million.
Speaker 4: was related to payout of annual bonuses as well as certain health care benefit contributions that are not expected to recur during the remainder of 2023.
Speaker 4: Yet, cash provided by investing activities was $16.6 million for the three months ended March 31, 2023.
Speaker 4: and consisted primarily of the maturity of marketable investment securities of $50 billion.
Speaker 4: partially offset by purchases of marketable investment securities of $30.1 million and purchases of property and equipment of $3.3 million.
Speaker 4: Finally, we had cash equivalents and marketable securities at March 31, 2023, up to $232 million, which we expect together with anticipated cash generated from sales of our tests will be sufficient to operationalize our business through 2025.
Speaker 4: I'll now turn the call back over to Derek. Thank you Frank.
Speaker 4: In summary, we are off to a great start in 2023, delivering strong year-to-year growth in revenue and total test report volume, driven by our continued execution on our long-term growth plans.
Speaker 4: I'd like to conclude today by thanking our CASEL team. I also thank you for your continued interest in CASEL.
Speaker 4: Now we will be happy to take your question. Operator?
Speaker 4: Now we will have to take your question operator. Thank you.
Speaker 2: In order to allow everyone in the queue an opportunity to address the castle management team, please limit your time on the call to one question and only one follow-up. If you have any additional questions, please return to the queue.
Speaker 2: Please stand by while we compile the Q&A roster. Our first question today comes from Thomas Flatten with Lake Street Capital Markets. Thomas, please go ahead.
Speaker 5: Hey, good afternoon, guys. Congrats on a great quarter. Derek, particularly in light of this morning's press release with that study, the world is showing a real impact on outcomes and even costs like the lower use of immunotherapy in the DX melanoma patients. Can you just...
Speaker 5: walk us through the status of your current health economic argument that you're making to payers and maybe give us a sense of how that's stacking up. Yeah, so we have...
Speaker 4: I guess data is being analyzed for additional publications first so give you qualitative answers only comments.
Speaker 4: So let's maybe take a macro from public data sets that we know about. So if you look at people, so we have two of our tests as you know.
Speaker 4: So let's maybe take a macro from public data sets that we know about. So if you look at people, so we have two uses of our test, one uses to rule out a...
Speaker 4: some of those surgical biopsy procedure which
Speaker 4: which is done without our test based upon tumor thickness, ulceration status, or other adverse features. And as you may recall, if you send 100 patients who quote, qualify for that procedure to a surgeon,
Speaker 4: He'll perform 100 surgical procedures, but only 12 of those people will actually have a positive sentinel lymph node, meaning 88 could have avoided that procedure if only you knew how to find them.
Speaker 4: And so we've generated data which shows that we can...
Speaker 4: likely eliminate or find about 75% of people who would have a likelihood of having a positive note under current guidelines and therefore you would avoid that procedure. So if you take those numbers and so okay, so three to four patients roughly speaking.
Speaker 4: who meet the sort of sweet spot of the CASEL test could avoid a procedure, what's that procedure cost? And there's different data points floating around. The most impressive ones probably are from a couple of years ago, which shows that a sentinelift or biopsy surgical procedure, including the cost of anesthesia.
Speaker 4: maybe take a haircut and that call it $20,000. If you just take our decision to expel an OMA split between Medicare and non-Medicare, that's the very, very substantial savings just on avoiding unnecessary surgical procedures. And that's good for many health extraction, reduction of really hard money in the short term. And the other hand,
Speaker 4: You then look at the use of our test in risk of recurrence and as you just point it out, if you can figure out which patients who might be even eligible for adjuvant immunotherapy today because of their thickness or tumor or the total status, but say actually you're you've even know you might have a thicker tumor, your actual likelihood of progressing is really pretty low.
Speaker 4: And as a patient and a clinician in this day and age and oncology, you basically talk about shared decision making where you lay out in front of a patient all the information in the pros and cons, by the way, of going on a certain path. When in case of immunotherapy, for example, you've got significant toxicities that aren't reversed for discontinwave ass? beating early.
Speaker 4: But if you happen to go ahead and detect early that you're one of the ones that have a little risk but actually metastasized, you can correct that and adjust that. So I think the economic story for castle is quite strong.
Speaker 4: I think from a payer perspective, we will see how this year-wide that especially in response the article that we talked about earlier this morning with our separate press release. Does that answer your question, the quality of nature?
Speaker 5: Yeah, I think that's great. Appreciate that. And then finally, on the last call, we had some conversation about the ID genetics code switching and you thought you might have more commentary on this call. So, can I just curious if you have any updates for us?
Speaker 4: No is the quick answer. We have things in process but no updates today. Thanks guys, appreciate it. Thank you Thomas. Our next question comes from Puneet Sudha with FVB. Please go ahead Puneet.
Speaker 4: quick answer. We have things in process but no updates today. Thanks guys, appreciate it. Thank you, Thomas. Our next question comes from Puneet Sudha with FBB. Please go ahead Puneet.
Speaker 5: Yeah, hi, I'm Derek Frank. Thanks for taking the question. So just a clarification on the guide. I mean, you be here by I think close to about 5 million from our expectations and just wondering, you know, what's the conservatism and the guide that you didn't change?
Speaker 4: Our view on the guide beneath is to be conservative and make sure that we're putting out guidance that investors can rely on and that we can be confident in without being overly worried about disappointing. So yes, we do have revenue from Squamice Cell and the guide. Okay.
Speaker 5: And then Derek, could you just, I didn't hear about this, so I just wanted to clarify if you could update us on the latest from the Novita, the other efforts you have ongoing for the SEC assay. And just overall, what's your expectations? I think we should have marked.
Speaker 4: that they will likely want to finalize the drafts that they put out there about a year ago, I guess a year and a couple weeks from now a year ago.
Speaker 4: And so we should hopefully all be expecting something that doesn't this is not a course of castle story This is just the generalized update to LCD and oncology biomarker story So I think we would still expect that to happen. We haven't heard anything through official channels But they've decided let that expire. Maybe that was a choice I think that's unlikely to be honest, but that's just my opinion not based any fact by the way
Speaker 4: I still think based upon conversations that we've heard through third parties of consultants that their intention was to try and streamline review processes with that LCD. That is if they feel that somebody else has reviewed it, who they has reviewed a certain test of the value they would try and reduce their workload by just adopting that inclusion.
Speaker 4: to review tests that have already been reviewed by somebody else, but not to abdicate their responsibility for reviewing tests that have not been reviewed by somebody else. So I think that's that's how we see that playing out. But timing you're right. I would have thought by sort of you know early to mid-May. Of course it's really early May right now. We would have heard something.
Speaker 5: And can you update us on your other efforts, ADLTs and other Macs that you had contemplated earlier? Is that still the pathway you're thinking about as sort of second options for this ASIC going forward for reimbursement? Thank you. Thank you.
Speaker 4: Yeah, so our expectation from, you know, I guess four or five to a month ago was that Palmeira was reviewing our application. The last detail focus call we had with them suggested that they were reading the application because they were very topical questions that wouldn't have come from general knowledge. So that's, I think that's positive for us. We have, or anything, formal, informal recently that we hadn't talked about since I think the end of the year in earnings. I think in terms of the ADLT status, we do think we meet the Pamela and native requirements that are out there. But we've chosen just based upon, upon the timing that CMS is taking to kind of turn around ADLT applications that we should not comment if we have submitted or intended to submit and just see that outcome mature become public.
Speaker 2: Next question comes from Catherine. Please go ahead, Catherine. Hey guys, thanks for the questions. I first came to talk about the National Society for Futaneous Medicine, Pamela Report that came out in March recommending the decision to X melanoma. How much weight does this body carry in the dermatology community? Do you think there's any potential to...
Speaker 4: to sway NCCN and relate to that. Are you still expecting the publication of the NCICS or study before the NCCN submission deadline? Yeah, good. Good. Let me write down these two questions here or two answers. So last one first maybe. So we did talk about them in script a few minutes ago.
Speaker 4: quarter, I mean, in the second quarter. So I think that would likely go in as well as still an article I talked about at the Morel and from the conference call. So yes to both those, well, Dylan and the NCI paper should be part of a submission and part of review cycle I would take. Going, stepping back to the to the to the guideline publication.
Speaker 4: It should be useful there in helping to continue to improve our penetration in the marketplace. We think there's a number of payers that look for guideline support and don't limit themselves just to one guideline committee. We would expect over time to have these kinds of support mechanism for other committees, expert panels or societies to have an impact of the weight of evidence. That's not going to turn everybody over night in July first by the way. But I think that's our expectation here is that those three of an audience will continue to have a benefit from a penetration standpoint and hopefully coverage lives turning over in positive manner.
Speaker 4: There's about a million a year.
Speaker 4: And so even though they aren't all eligible for our testing or appropriate for our testing it is something that clinicians think about very regularly and so we're excited to see it and we do when we developed it that we had a test that physicians were looking for and I think this is validates that traction validates that.
Speaker 4: And a couple of that with the first quarter, remember back in kind of, I guess it was maybe August or September , we shifted from kind of 80% of the dermatology sales team focusing on Decision Dex Malanoma to roughly 50-50 between Decision Dex Malanoma and Decision Dex FCC. And if you, you know, if you think about hiring a new representative that takes, you know, we think two quarters to kind of really see the output of that new hire. So if you want to view this change in focus from 80, 80, 10, 10 to 50, 50, approximately beginning call October 1, then the first quarter should have been the time we would begin to sort of see the benefits of that. And...
Speaker 4: Although we didn't emphasize it really in this call here, one of the things we measure internally is for the dermatology group is not melanoma separate from SCC. It's the same body promoting the same to test the same customer base, you know, 90% of the time. So our metric of success is trying to move towards combining both melanoma and SCC into A.
Speaker 4: productivity growth line. So it was very, very nice to go ahead and see strong growth in melanoma and as you point it out, you know, really, really nice for bus growth in the SEC test.
Speaker 2: Our next question comes from Mason Caraco with Steven. Please go ahead Mason.
Speaker 4: It seems like tissue ciphers really set up to have a strong ear. Moving along very nicely, I would say I guess ahead of our forecast maybe is the way I would call that when we did diligence a year ago, a year and a half ago on them. So I think to have a see the acceptance by clinicians being ahead of maybe plan feels like now we got we really got two horses and are stable to really have a fantastic four or five years.
Speaker 4: And I would concur with you, I think, based upon the amendment we were seeing in the first quarter, speaking about tissue cypher here specifically, coupled with the fair change in the reimbursement rate, that this could have an opportunity to have a more significant impact on revenue in the last half of the year, obviously, than we would have anticipated.
Speaker 4: three to four or five months ago, right? So I think that's that I think you're you're on the right track there. A lot of moving parts between early May of course in late December , but it seems to me that we're there. So in terms of impediments from a kind of commercial or adoption standpoint, we aren't we aren't hearing of any from a customer standpoint. I think we have this
Speaker 4: The gastroenterologists are a little more complex to deal with compared to a dermatologist because unlike a dermatologist who takes their biopsies in the office setting so they have their nurse, their MA there. They know where the tissue is gone to, the diagnosis goes back to the same people we're talking to in a dermatology office. In the case of gastroenterology, all of those biopsies are occurring in an amulatory care center or some other kind of operating room environment which is not worthy of gastroenterology because of the disease or patients clinically so there's...
Speaker 4: There's a little more complexity in sort of making sure the office staff knows about tissue side for so the path report comes back. The gasrologist can be reminded about saying, oh yeah, I did want to order 2700 test because then in the operating suite of course they think they might see bearish as suffocates but don't really know until it comes back later. So that adds a slight impact on the kind of complexity. So I think with that being said, that's just block and tackle work, right? So I think we feel very very happy about...
Speaker 4: We've seen in the first quarter, especially over fourth quarter and third quarter last year. I think first quarter comparison, well you're obviously we have to do it, but I would almost throw out the window because we were just getting started. You had the Medicare 14 day rule. I was impeding appropriate ordering of our tests and those got all got solved and unable first to course. So very pleased.
Speaker 4: Lots of upside, don't see impediments from an adoption standpoint of doctors, but it's a little more complex sale than we see in dermatology just because we've got different locations where a GI doctor works.
Speaker 6: Okay, thanks. That's helpful. So then on the on the ramp of that GI sales team, just given the strong demand you have seen in Q1 and so far in Q2 here, any updated thoughts on how many reps could be added to that team this year? We're evaluating that right now.
Speaker 4: We knew that physicians were looking for a solution like tissue cipher and we were really excited when we got the opportunity and so it's nice to see that bear out. So we'll kind of balance, try not to disrupt territories too much with also recognizing we've got some more opportunity there that we could take advantage of.
Speaker 4: Can you give us a sense for what caused the substantial growth in that product? Was it sales execution or maybe more salespeople? Or do you think it's broader awareness of all the multiple indications in mental health? Would love to just get a sense for, you know, what drove the growth and how should we think about that going forward from here?
Speaker 4: Oh, thanks, Mark. Yeah, I, so similar to my last two comments, we knew when we looked at tissue cipher, it was a great test. We were very excited about it. We knew it was a tremendous opportunity. We wanted to be really careful and make sure we got the messaging correct and that we got the support for the messaging developed and developed well. And so we, as we've said before, we didn't want to try to
Speaker 4: in a really large and underserved market. Yeah, we did not increase number of territories over the third and fourth quarter. Our plan was to sort of, as you may recall from last quarter, even the fourth, I mean, even the third quarter, our approach to both iGenics and tissue cipher was to really...
Speaker 4: take five or six quarters and integrate these things as we should not necessarily slowly but not necessarily running crazy. And I think you know tissue ciphers a good two quarters ahead of eigenetics and we're seeing the fruits of that labor beginning last fall in the spring. I think you're right. We anticipated that we were seeing a very very solid test that was competitively different.
Speaker 4: the fourth quarter with a really, really nice strong team out there. But the team size did not change the quarter to the quarter, which just tells you the kind of demand it's out there when you get the message right.
Speaker 4: Okay, great. In apologies, I've been bouncing around calls, so I haven't heard your prepared remarks yet. But the tissue sniper test, can you just remind me when the ADLT rate of 4950 went effective and maybe just remind folks, you know, is that somewhere around 40 to 45% of your volume? So, you know, if those things are true, you know, your ASP should probably be hovering in the...
Speaker 4: year rate and then 2025 is based upon the first half of this year's rate. So the rate is consistent for two years, you can see it transparently. In terms of, oh, cred now, oh yes, mix, mix. So volume's still a little low in terms of...
Speaker 4: definitively saying what the mix of sort of 65 years of age and older may settle out at versus under. But I think what we're seeing right now is it looks like a patient base that's pretty close to cutaneous melanoma. So maybe kind of a 45% of the patients are over age 65, which would mean most of them are Medicare, Medicare Advantage, not all of course, but most. And then,
Speaker 4: They're raining 55% or below the age 65 years of age. So I think that's where we'll probably settle out, but I would give ourselves some wiggle room about that around that number until we get through 2023 and get to a bigger base so we can be more confident kind of in outlying years that looks like. So your calculations, I think in terms of average A is P, if you assume no commercial payment is certainly not reasonable. And of course,
Speaker 4: Not unreasonable. At this point in time. Our next question comes from Sunji Nam with Scotiabank. Please go ahead.
Speaker 7: Hi, thanks for taking the questions, and congratulations on the quarter. For the study that you published or you're referring to this morning with the Decision DX melanoma guiding radiological surveillance, could you remind us if that's kind of the first of such study? And are there plans for
Speaker 4: years ago we had put together and used with clinicians an indirect chain of evidence as we would call it, right? So our test does, risk stratifies patients. If you use it within current guidelines, then people should be, have improved treatment pathway selection process. You know, people who look like they're low risk on pathology.
Speaker 4: but high risk on the cathletesca get an escalation of care, but within an existing pathway and the reverse happens. And if you fall the indirect chain of evidence, then the evidence shows that if you are actually in a high risk treatment pathway, then you are...
Speaker 4: the first care impact is really being undergoing routine scheduled uh... imaging which in melanoma sort of pelvis to net uh... CT scans maybe four times a year and then brain MRIs a couple times a year but that varies slightly depending on institution or medical oncologist
Speaker 4: So that you can pick up a medisptide spread earlier when it's asymptomatic. And the sort of phase three trials for the immune therapy agents within melanoma as well as the targeted therapy is all shown consistently that patients who get a better response are those where you detect a lower tumor burden of disease and they go on drug, i.e., you know, with the HECK by imaging versus...
Speaker 4: with our data to have that benefit doctor.
Speaker 4: I think that the paper that we discussed this morning, and I spent some time in the conference call here walking through, is really impactful because it shows you that at three large NCI centers across the U.S., who had employed, who had put our tests within their treatment pathways.
Speaker 4: compared to patients in the same centers who weren't tested, they actually live longer. I mean, that's fantastic, right? So you're able to pick up metastatic disease when it was a smaller volume. You've got them on therapy and they actually have a higher survival rate. I mean, you can't get almost, I mean, out of a randomized controlled trial for a drug, you can't get much better data, despite there being limitations, of course, by the way.
Speaker 4: Now, going forward, I think that the National Cancer Institute study, which will come out here in a few weeks, is a powerful dataset that is indirect in nature. And we also have other studies ongoing where that might be an output that we go ahead and see. So clinical utility studies, almost like this article this morning by Dillemann colleagues, where we looked at...
Speaker 4: Do you use our test clinically? Yes. So let's enroll you in a study. You make changes that are within your own little pathway, which are larger than same. And then you'll follow the outcome. So I would expect us to go ahead and see reporting on those kinds of things that we haven't going through COVID in other year or two to provide additional data showing. Wow. Not only do you have a test that you know risk stratifies, but you actually have multiple publications now showing.
Speaker 4: showing a direct link of evidence that when you use our test, patients get put into the right pathway, they get disease picked up earlier when it spreads, they get on effective therapies and they live longer. That is the ultimate goal of course of treating cancer or any disease for that matter. So yes, expect more of that similar kind of data sets coming out that will be CASEL sponsored versus independent. Got it. That's great to hear. And then just on the pace and volume trends.
Speaker 4: That's a good question.
Speaker 4: I think the answer is no. I mean, the third party vendors and their data sources do fluctuate via their contract changes year over year. So it's hard to say, you know, is the 2018 or 2019 data set the exact same sort of number of doctors and patients as 2023? I would say that I'm unaware of any sort of McGregor Center is there or what their
Speaker 4: underlying rise in melanoma diagnoses that have kind of recovered against that is the case. So I believe that most of all of the growth we're seeing across our melanoma tests, quamous cell, you could even say tissue cypherlosar very low penetration is due to just position increase position adoption because they see the value of our test clinically.
Speaker 4: I do think that the one trigger that might change that on a macro level might be when we decide to cut the profit margins of telemedicine.
Speaker 4: versus in-person medicine and the subsequent impact that will have on patients being seen by clinicians for things like high blood pressure or hypertension or diabetes and somebody picks up the mole on the back of their ear or the back of their neck that the patient didn't see beforehand. I think that's the major shift I would think about saying, when do you see...
Speaker 4: across skin cancer, that visual diagnosis being picked up. I think the major boulder to roll down the hill is going to be people are not motivated for telehealth, they are motivated for in-person visits and that would pick up these incidental diagnoses.
Speaker 2: We have no further questions. I'll turn the call back to Derek for closing remarks.
Speaker 4: Thank you operator. This concludes our first quarter earnings call. Again, I thank you for joining us today and for your continued interest in Castle Biosciences. Thank you everyone for joining us today. This concludes our call and you may now disconnect your lines.